The Greater Des Moines Partnership’s Executive Director of Entrepreneurial Initiatives, Mike Colwell, shares tips on developing financial plans for startups and keeping them updated as the business grows. Because you could need more funding at any time, your financials should include the most recent information surrounding cash flow, revenue and expenses. Mike recommends using a three-year model to forecast financial information.
Develop Your Financials
Forecasting your startup’s financial data, including your gross revenue, expenses including costs associated with your team, operation of your business and more, as well as cash flow will help investors see the longevity in your startup and may lead you to successfully raising capital. Here are the sections broken down.
There are several methods to forecast your startup’s revenue. For product sales-based companies, it can be as straight forward as taking the estimated number of units sold for each month. More extensive models will estimate sales based on a conversion rate from specific marketing programs. This will be more difficult for a business that has no history to pull from. In those cases, where it’s a first-year business, early marketing tests and initial sales efforts become more important in developing a viable financial forecast.
The key to a solid expense forecast is to make sure your expense track with the patterns of the business and market. For example, if the market you are in has many tradeshows in the fall, your forecast should reflect the expenses related to these events in the fall period. Stay away from forecasts that show the same amount of money spent every month. Forecasts that are dominated by this type of “flat line” forecasting will discredit you with potential investors.
Cash Flow Projection
How much cash flow is going out and how much is coming in? To manage, you must know where your cash flow is at all times. Mike explains how over aggressive purchases can lead to a startup finding itself in a tight spot.
The Raising Capital Seminar is an annual event in Greater Des Moines (DSM) that helps small businesses and startups grow and secure funding. Hear from founders and angel investors and learn how to take your business to the next level. To find more information on when the next annual Raising Capital Seminar takes place, as well as view past event videos visit the Raising Capital Seminar page.